Force of Porter Explanation of force Application to entity

1. Bargaining power of  It is affected by how many buyers or

buyers/customers customers a company has, how significant
each customer is, and how much it would
cost a company to find new customers or
markets for its output.
 A smaller and more powerful client
base means that each customer has more
power to negotiate for lower prices and
better deals.
 A company that has many, smaller,
independent customers will have an easier
time charging higher prices to increase
profitability.
2. Bargaining power of  It is affected by the number of suppliers of
suppliers key inputs of a good or service, how unique
these inputs are, and how much it would
cost a company to switch to another
supplier.
 The fewer suppliers to an industry, the more
a company would depend on a supplier. As a
result, the supplier has more power and can
drive up input costs and push for other
advantages in trade.
 On the other hand, when there are many
suppliers or low switching costs between
rival suppliers, a company can keep its input
costs lower and enhance its profits.
3. Threat of substitute  Substitute goods or services that can be
products used in place of a company's products or
services pose a threat.
 Companies that produce goods or services
for which there are no close substitutes will
 have more power to increase prices and lock
in favourable terms.
 When close substitutes are available,
customers will have the option to forgo
buying a company's product, and a
company's power can be weakened.
4. Threats of new entrants  The less time and money it costs for a
competitor to enter a company's market
and be an effective competitor, the more an
established company's position could be
significantly weakened.
 An industry with strong barriers to entry is
ideal for existing companies within that
industry since the company would be able
to charge higher prices and negotiate better
terms.
5. Rivalry among existing  The larger the number of competitors, along
sellers to attract with the number of equivalent products and
buyers/competition in services they offer, the lesser the power of a
the industry company.
 Suppliers and buyers seek out a
company's competition if they are able to
offer a better deal or lower prices.
 Conversely, when competitive rivalry is low,
a company has greater power to charge
higher prices and set the terms of deals to
achieve higher sales and profits.